LITTLE ROCK (ANB) — A state audit of a financially troubled Russellville nonprofit that earlier this year relinquished government funded child care operations did not find any indications of fraudulent activity, according to a draft of the audit obtained by the Arkansas News Bureau.

The audit did find that Child Development Inc. overextended itself financially after receiving federal stimulus funds and failed to reduce expenses accordingly when the federal funding stopped.

The audit found that during CDI’s last year of operation — Feb. 1, 2011 to Jan. 31, 2012 — expenses exceeded revenues by $582,062.

During that period, stimulus money decreased $1.3 million while expenses only decreased $753,165, according to the draft copy of the audit, which was sent to members of the CDI board for comment.

The audit is to be presented Friday to the Legislative Joint Auditing Committee.

“Common business practices, it sounds like, were not incorporated by people who should have known better,” said Rep. Terry Rice, R-Waldron, who along with Rep. Jon Eubanks, R-Paris, requested the audit in late February.

Rice said Tuesday he had not seen the report, but had heard that it was completed.

“I’m sure there will be more discussion,” Rice said, noting that lawsuits have been filed by former employees who were not paid for work they did in January, and that the Office of Inspector General in the federal Department of Health and Human Services is investigating the nonprofit’s financial problems.

The nonprofit, which provided child care services to more than 2,300 children at 30 centers in 12 counties, closed its doors Jan. 31, the last day of the fiscal year for the federally funded Head Start program. It reopened the next day but eventually relinquished the federal and state grant funding it received to operate the centers.

According to the state audit, 72 percent of the funding was federal and 15 percent state. The rest was listed as in-kind matching.

Denver-based Community Development Institute took over both the preschool programs Feb.13, and a week later, a spokesman for the federal Department of Health and Human Services said a federal investigation had begun.

Jim Smith, attorney for the nonprofits board of directors, did not immediately return a telephone call seeking comment Tuesday.

In late February, eight former employees of Child Development Inc. filed a federal lawsuit against their former employer alleging they were not paid for work they performed dating back to January.